Risk Assets Across the Board Retreated Overnight

Risk assets across the board retreated overnight and all four major US benchmarks are pointing lower ahead of the bell, states Bill Baruch of Blue Line Futures.

Still, the S&P, NQ, gold, and silver, after pulling back and trading where they are at 5:30-6:00 am CT, are all higher on the week. To put things further into perspective, if the S&P and NQ closed here, we have new weekly high settlements. One recurring theme of ours is that markets focus on what they want, when they want, and the headlines attribute reasoning post move. We have discussed, not only this week but in prior ones, that risk assets are focusing on the added certainties the new administration brings and ignoring the added uncertainties.

One major uncertainty caught our eye yesterday and in hindsight carried weight earlier this week. The incoming US Treasury Secretary, Janet Yellen, said the US needs to take a different approach to toughen on China. We are all aware of the hawkish approach the previous administration took on China and the uncertainties they added to markets. There is no doubt that China has been a major catalyst in rising asset prices through a relief rally of sorts post-election, a quicker pandemic recovery, and new strategic initiatives. This week, Yellen introduced an added uncertainty to one of the driving forces across asset classes.

Furthermore, expectations must be set that President Biden’s swift move in cancelling the Keystone Pipeline, re-globalizing the US (which costs money), and the threat of increased taxes will have an adverse impact on rising risk assets. Remember, although we may be in the latter half of the pandemic, we are very much in the thick of it. Biden himself painted a gloomy picture yesterday saying the US could see 100,000 deaths over the next month. Is this the start of the end? We do not know, nor would we want to predict. For now, we must lean on what we have on hand and that is: at these levels, the S&P, NQ, gold, and silver are all higher on the week and we have been calling for exhaustion across the energy space.

After the bell yesterday, Intel and IBM both left a quite a bit to be desired. For IBM (IBM), it was a revenue miss. For Intel (INTC), the earnings were solid, but plans of added spending and air coming out of the CEO transition are weighing on the stock. This morning, we look to Kansas City Southern reporting ahead of the bell. This is a stock on our buy list.

On the economic calendar, Flash PMIs out of Europe were mixed. Germany’s Manufacturing missed expectations, but the Eurozone read still beat. However, both in January did not expand at December’s pace. The real story is the dismal reads across the board for the UK. We now look to the US slate of fresh January PMI data at 8:45 am CT. The reads will certainly have an impact across the risk landscape, either adding pressures or helping to bottom out the early morning selling.

The U.S. Dollar Index has improved only slightly. Next week, we look the Federal Reserve and I will join CNBC today to discuss the 10-year Treasury landscape at 11:50 am CT. However, commodity currencies, the Australian and Canadian dollars are each down more than 0.5% this morning. Lastly, the Chinese yuan is down 0.45% against the US dollar and pointing lower for the second week in a row. This is why traders must look beyond the US Dollar Index basket that is 57% the euro, especially during ECB week.

E-mini S&P (March) / NQ (March)

Technicals: Ultimately, the S&P achieved our next major three-star target at 3865 with a high of 3859.75 overnight into Thursday. Despite the tape pointing lower at the onset of US hours today, we are very pleased with this week’s breakout. It is important, that traders capitalize on strength, and we exuded such by decreasing our outright bullish bias from Wednesday to bullish/neutral yesterday after the achievement. There was certainly a terrific swing opportunity upon pulling back early yesterday as the tape held levels of first support. Still, given the steep ascent this week, even that late day rebound in the S&P was unable to decisively hold our momentum indicator that comes in at 3839 this morning. Also, it is beginning to slope lower. Furthermore, the NQ, is now trading below its that aligns with major three-star resistance at 13,369, a level that it only decisively traded out above briefly late yesterday. Each must close out above here today in order to fully neutralize this wave of selling and turn the tape bullish across all timeframes once again. To the downside, price action in the S&P is chewing through major three-star support at 3817.75 this morning and eyeing a gap at 3790.50. The NQ is facing first key support, but traders must be on the lookout for this move retesting major three-star support at 12,985-13,017 over the coming day or two. For the time being, we will take a fully neutral approach, but the intermediate to long-term trend is clearly higher; there may be a buying opportunity against 3790.50 today, however, it is tough to tell how things will look within the first hour.

Bias: Neutral/Bullish

S&P, yesterday’s close: Settled at 3846, up 1.00
Resistance: 3836-3839**, 3846***, 3865***, 3894***, 3976-4009****
Support: 3817.75***, 3804.50**, 3790.50***, 3773-3775**, 3758.00-3762.25***, 3738.50-3740.75***

NQ, yesterday’s close: Settled at 13,395.50, up 101.25
Resistance: 13,350-13,369***, 13,523-13,583***, 14,274****
Support: 13.259-13,283**, 13,118-13,157**, 13,075**, 12,985-13,017***, 12,897***, 12,850-12,861**, 12,780-12,808***

Crude Oil (March)

Yesterday’s close: Settled at 53.13, down 0.18

Technicals: Yesterday, we noted that crude oil has been trading below our momentum indicator since Wednesday afternoon and such has continued into today. This confirms exhaustion and opens the door to waves of selling. Price action is now down nearly 3% on the session and at the lowest level since January 11. It is facing major three-star support at 51.40-51.51 and a close below here today will invite continued selling pressures with a move to the $50 mark in mind.

Bias: Neutral/Bearish
Resistance: 52.70**, 53.13**, 53.60-53.94***, 54.66**, 57.52***
Pivot: 52.22
Support: 51.40-51.51***, 50.63-50.87***, 49.52-49.84***

Gold (February) / Silver (March)

Technicals: The bullish rip through early yesterday morning has fully stalled out. We noted here yesterday that 1859-1864.9 will continue to be a crucial pocket, now aligning with our momentum indicator. Today’s selling is very broad, and we did not have another support until 1840-1845; this level is getting tested this morning. Similarly, after steadfastly staying below our momentum indicator at 25.75, silver is now testing major three-star support at 25.03-25.13. Overall, we must see a response by the bulls at these support levels, but we are not extremely hopeful this morning and have gone completely neutral in the near-term. Still, we have upbeat intermediate to long-term expectations once February gold futures and options expire next week. The most disappointing factor here today is that gold and silver have given up their outside bullish engulfing weekly bars; such would require a close above first major three-star resistance for each. Stay patient and manage your risk.

Bias: Neutral/Bullish
Resistance: 1859-1864.9***, 1873-1875.9**, 1881**, 1895.1-1900****
Support: 1840-1845**, 1829.9-1831***, 1813-1820***, 1800***

Silver (March)
Resistance: 25.99-26.07***, 26.41-26.55**, 27.00-27.28***
Pivot: 25.75
Support: 25.03-25.15***, 24.86**, 24.04-24.30***, 23.41-23.63***, 21.93-22.00***

Learn more about Bill Baruch at Blue Line Futures.